Normally the start of the monthly economic data from China would dominate financial markets, while the monthly meeting of the Reserve Bank would be the big news in Australia. But after last Friday night’s shock US jobs report for May, it’s a speech tonight by Fed chair Janet Yellen that will hold the attention of investors the world over.
While the RBA board meets tomorrow and China’s data comes later in the week, to markets it’s the latest thinking from the Fed chair on the path of US interest rates that will be the more important in the wake of the the May jobs report revealing the lowest number of monthly new jobs for six years – just 38,000.
Before Friday night’s report, Ms Yellen had been expected to repeat her comments from a week ago that if economic data unfolds as the Fed expects then a rate hike is likely to be appropriate in the “coming months” but without revealing as to whether she favours June or July.
But the jobs report has changed market expectations, and even though the number was impacted by a national strike by Verizon employees, they have now returned to work and will boost the June jobs report.
But even with the 34,000 people involved in the strike added back into the jobs figures, the number of new jobs created last month would have been 72,000, still a shock. And on top of that 59,000 jobs that were lost for March and April in revisions, it is clear the US jobs report has cooled suddenly.
So anyway you look at the report, the figures were a massive surprise to markets and investors and while the timing of a rate rise is off for this month, it might happen in July (if the June jobs report is around 160,000 or higher), more likely in September, and not at all if May’s weakness is repeated in coming monthly releases.
But now the surprising weak jobs report for last month means Ms Yellen’s speech assumes even greater importance. She will no doubt say the Fed needs more data, but that has been the line for months now.
China’s data for May will start to be released with exports and imports on Wednesday and inflation figures on Thursday.
The trade figures are forecast to show a small improvement from April’s weaknesses, consumer price inflation will remain around 2.3%, but a further easing of producer price deflation is expected. Credit data is expected to show a pick up in lending from the softness seen in April.
In Australia interest rates will again be the focus, with the RBA meeting tomorrow, but after the strong March quarter GDP report and early data for April showing a continuation of a solid pace of activity, the bank will leave rates on hold.
The AMP’s chief economist Dr Shane Oliver says that, “While lower than expected wages growth for the March quarter and a still too high Australian dollar support the case for another rate cut to combat downside risks to inflation, solid real economic growth and the RBA’s desire for “further information” after cutting last month is likely to see the RBA wait till August before cutting rates again”.
And the Reserve Bank of NZ releases its latest interest rate decision on Thursday of this week – no change is expected.
In the US Ms Yellen’s speech tonight in Philadelphia has suddenly become vital to market thinking after the disappointing jobs report for May.
“Markets will be waiting with bated breath to see whether she strikes a more hawkish tone or one of continued cautiousness ahead of the June FOMC meeting,” economists at Bank of America, said on the weekend.
Other data this week for the US includes productivity and consumer confidence.
On the political front investors will keep an eye on US presidential primaries and caucuses in California, Montana, New Jersey and New Mexico among others. A total of 475 delegates are up for grabs in California, but if Mrs Clinton wins New Jersey she will have enough delegates to claim to nomination without needing California.
And further to the week’s Chinese data releases, US Treasury secretary Jacob Lew and Secretary of State John Kerry visit Beijing this week with a long list of topics ranging from security issues in the South China Sea, currency values, crypto security and trade.
In Europe, industrial production reports for May will be released across the eurozone and the UK this week. Eurostat releases updated GDP numbers for the first quarter tomorrow night, our time.
At the same time the European Central Bank extends its bond buying program to corporate debt this week (following the lead of the Bank of Japan).
Central banks in India, Brazil and Russia join the RBA in releasing their latest monetary policy decisions this week.
